Will newer Austin investors be able to exit at all? Ever?

[Marian Smith]

Redfin just alerted me that a 1300 sq ft home listed at 185k closed having sold for $198k...not in Austin proper but in suburban Brushy Creek just off 45, fairly close to the new Apple campus.  The house is now listed for rent for 1400$...maybe 1450$...but rentals list for about $100 sq ft in the area.  Five years ago when I bought the exact same /facade/floor plan in the exact same neighborhood, the bank listed it for $95k ...I paid less as it was rather too chewed up for a retail buyer.  Interest rates were higher.  I had no problem pulling the trigger as I was very familiar with the area and considered anything under 100k well worth looking into.  BUT  200k???? Five years, two months later?  How can prices not revert to the mean?  

[Scott Trench]

I find it interesting when people talk about cities like Austin and my own Denver experiencing a "bubble." This scares me because it seems like I'm screwed if I invest, and even more screwed if I don't. 

I don't know about Austin per se, but in Denver, people keep talking about home values and rents as a ratio to average and median incomes. 

I think that this argument makes little sense. It's not the "Average" incomes that drive prices.

Instead, you have to look at all the people that want to live in a given area, and all of the inventory in that area. Then, it's the average income of the group of people that make the most and can therefore pay the most to live in that area, over the amount of available inventory.

You can talk about a bubble all day long, and you might just watch San Francisco happen all over again. Three decades in a row now people have been talking about overpriced San Francisco real estate, and for three decades investors have been laughing at them all the way to the bank. Average earners are simply forced out and have to share/bunk up or figure out how to make more money if they want to stay.

These are the questions that matter when it comes to determining if your city is a bubble:

Are more people going to move into your city over the next few decades?

Are those people going to make enough money to pay more for prime real estate in your city?

Is supply and new housing starts in the areas you wish to invest going to match demand?

Sorry, average and median incomes have nothing to do with your real estate prices. It's the supply and demand for property. If there are 10 properties on the market and everyone wants to be in those properties, then only the 10 richest people in your city matter as far as pricing is concerned. The rest are priced out. The good news for investors is that supply is pretty easy to predict in our cities with government regulation. The demand is what matters - and it seems to me that Denver is going to keep on growing and appreciating until quality wage earners and entrepreneurs stop moving here, or they turn on the faucet for new construction.

From what I've heard elsewhere and see on this thread, it seems that it's the same story for Austin.